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Tuesday, June 27, 2006

The Sky Might Fall... Maybe

I had the opportunity to have breakfast with Ms. Tucker Heart-Adams, who is the Chief Economist of Aquila Funds. Despite a dismal C+ in Econ back in college, I was thoroughly fascinated with her insight.

She mentioned some interesting facts and predictions for the future of our economy.

We are in a time of "Stable Disequilibrium" she said. This means we look stable on the surface, but give it a bump and things destabilize and things are volatile.

We look stable because:
  • Corporate Profits are at a record level and have large cash sums, which makes our economy strong.
  • The US has 5% of the world's population and 32% of the worlds consumption, which suggests we are wealthy, but also a bit overboard with spending.

We are in Disequilibrium because:
  • Consumer debt is increasing.
  • Homes are mortgaged two times for full value.
  • Spending stayed steady through recent job losses.
  • We use our homes as an ATM instead of an investment
  • Interest rates are rising
  • Housing foreclosures are increasing
  • 2005 was one of 3 years of US history when savings was a negative. (The other two were 1932 and 1933 which was of course the depression era.)
The big news was her prediction that 2007 will be a year of recession.

My reaction isn't to go bury my head in the sand during 2007, but rather figure out how to make money off of other's failure. For this I like the check cashing business... but not the bullet proof glass you have to stand behind.